Southern Cross Building Society Rates at BB - first NZ rating

Thursday 27th August 2009

Standard & Poor's has assigned its first credit rating for a New Zealand building society, rating Southern Cross Building Society at BB long term, and B short term.

SCBS is New Zealand's third-largest building society, operating since 1923.

The rating outlook is stable and the agency praises recent governance improvements and the fact that it is free of related party risks. All financial institutions wishing to remain in the Government's retail deposit guarantee scheme must be rated before October 12 next year. BB is the lowest rating at which participation will be allowed, and will require participating building societies to pay a fee of 0.6 cents in every dollar insured in the scheme until it expires in December 2011.

Institutions can leave the scheme voluntarily at any time.

"The ratings on SCBS partly reflect our opinion of the concentration of SCBS's customers in the higher-risk sectors of rural and commercial lending," the international rating agency said.

"Furthermore, in the current economic environment, there has been an increase in SCBS's non-performing assets. These risks are mitigated by SCBS's sizeable portfolio of residential loans, manageable loan-to-value ratios, and proactive management of the portfolio in the weakening environment.'

“SCBS benefits from its solid retail funding base and sound capital ratios,” Standard & Poor’s credit analyst Gavin Gunning said. “We note, however, the absolute size of SCBS’s capital is small by international standards, affording moderate protection against major operational or other negative risk events, should they arise"

Businesswire.co.nz

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